UPDATED Sunday: Phone lines will ring hot this weekend as world leaders make a series of emergency calls about the US downgrade and eurozone debt crisis | Saturday: Ratings agency Standard & Poor's has cut its long-term credit rating on the United
UPDATED Sunday: International phone lines are ringing hot as world leaders make a series of emergency weekend phone calls about the US downgrade and eurozone debt crisis.
Global media are reporting that French President Nicolas Sarkozy, who chairs the G7/G20 group of leading economies, has spoken with British Prime Minister David Cameron ahead of a call planned for G7 finance ministers and central bankers.
"They discussed the euro area and the U.S. debt downgrade. Both agreed the importance of working together, monitoring the situation closely and keeping in contact over the coming days," a spokesman for Mr Cameron said, according to Reuters.
The eurozone central bank governors will hold emergency talks today aimed at preventing Spain and Italy from becoming the next victims of the sovereign-debt crisis andat limiting fallout from the first US credit-rating cut in history, Bloomberg reported.
Ratings agency Standard &Poor's has cut its long-term credit rating on the United States.
Despite the last-minute debt deal reached last week, S&P said concerns over increasing US budget deficits were behind the move to lower the country's long-term credit rating by one grade to AA+.
"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics," S&P said in a statement. Read the full statement here.
And it might not be the end, with the agency leaving the US rating on negative outlook meaning a further downgrade could be made.
S&P made the announcement after the Wall Street Friday close. It means that US Treasurys (bonds), often thought of as the safest investment in the world, are now seen as less secure by S&P than bonds issued by the UK, Germany, France or Canada.
The downgrade will likely increase borrowing costs in the US and will not please China, which is the largest holder of US Treasurys and which has taken time to this week to say it was not under any pressure from its large US exposure.
S&P put the US on review for a possible downgrade in mid-July, citing concerns over a lack of action from the US Congress over the country's $US1.4 trillion, or roughly 9% of GDP, fiscal deficit. The US has had the top AAA rating from S&P since 1941.
Earlier this week, Moody's ratings agency confirmed its Aaa rating for the US.
Market watchers are split over the effect of today's downgrade, with some saying the global importance of the US currency and Treasuries as central instruments of world trade and finance will mean the move would send shockwaves through a global economy already jittery about the eurozone economic crisis.
Others, citing low credibility for ratings agencies which failed to foreshadow the GFC, say world markets are unlikely to take much notice.
